Tencent Announces 2020 Second Quarter and Interim Results

HONG KONG,Aug.12,2020 -- Tencent Holdings Limited ("Tencent" or the "Company",00700.HK),a leading provider of Internet value added services in China,today announced the unaudited consolidated results for the second quarter ("2Q2020") and first half year of 2020 ("1H2020") ended June 30,2020.

1H2020 Key Highlights

Revenues: +28% YoY; Non-IFRS[1] profit attributable to equity holders of the Company: +29% YoY

Total revenues were RMB222,948 million (USD31,492 million[2]),an increase of 28% over the first half of 2019 ("YoY").

On a non-IFRS basis,which is intended to reflect core earnings by excluding certain one-time and/or non-cash items:

- Operating profit was RMB73,204million (USD10,340 million),an increase of 31% YoY. Operating margin increased to 33% from 32% last year.

- Profit for the period was RMB59,204 million (USD8,363 million),an increase of 29% YoY. Net margin increased to 27% from 26% last year.

- Profit attributable to equity holders of the Company for the period was RMB57,232million (USD8,084 million),an increase of 29% YoY.

- Basic earnings per share were RMB6.038. Diluted earnings per share were RMB5.945.

On an IFRS basis:

- Operating profit was RMB76,571 million (USD10,816 million),an increase of 19% YoY. Operating margin decreased to 34% from 37% last year.

- Profit for the period was RMB61,857 million (USD8,737million),an increase of18% YoY. Net margin decreasedto 28% from 30%last year.

- Profitattributable to equity holders of the Companyfor the period was RMB62,003million(USD8,758million),an increaseof21%YoY.

- Basic earnings per share were RMB6.541. Diluted earnings per share were RMB6.440.

Total cash were RMB281,086 million (USD39,704 million) at the end of the period.

2Q2020 Key Highlights

Revenues: +29% YoY; Non-IFRS profit attributable to equity holders of the Company: +28% YoY

Total revenues were RMB114,883 million (USD16,228 million),an increase of 29% over the second quarter of 2019 ("YoY").

On a non-IFRS basis,which is intended to reflect core earnings by excluding certain one-time and/or non-cash items:

- Operating profit was RMB37,629 million (USD5,315 million),an increase of 38% YoY. Operating margin increased to 33% from 31% last year.

- Profit for the period was RMB31,220 million (USD4,410 million),an increase of 29% YoY. Net margin remained stable at 27%.

- Profit attributable to equity holders of the Company for the quarter was RMB30,153 million (USD4,259 million),an increase of 28% YoY.

- Basic earnings per share were RMB3.180. Diluted earnings per share were RMB3.130.

On an IFRS basis:

- Operating profit was RMB39,311million (USD5,553 million),an increase of 43% YoY. Operating margin increased to 34% from 31% last year.

- Profit for the period was RMB32,454 million (USD4,584 million),an increase of31% YoY. Net margin remained stable at 28%.

- Profitattributable to equity holders of the Companyfor the quarter was RMB33,107million(USD4,676 million),an increase of37%YoY.

- Basic earnings per share were RMB3.491. Diluted earnings per share were RMB3.437.

[1]Non-IFRS adjustments (formerly referred to as non-GAAP) excludes share-based compensation,M&A related impact such asnet (gains)/losses from investee companies,amortisation of intangible assets and impairment provision/(reversals),as well as income tax effects.

[2]Figures stated in USD are based on USD1 to RMB7.0795

Mr. Ma Huateng,Chairman and CEO of Tencent,said,"Since the beginning of this year,the COVID-19 pandemic has swept the world,disrupting our daily work and life routines. During this challenging time,we utilised our platforms and technologies to help users adapt to the new normal via online tools,to support enterprises in conducting digital upgrades,and to broadly contribute to economic recovery. We achieved generally robust operating and financial results in the second quarter,testifying to the diligence of our teams and resilience of our business model. We are committed to investing in talents,technology and platforms in a disciplined manner to embrace the emerging structural opportunities and challenges ahead."

2Q2020 Financial Review

Revenue from VAS increased by 35% to RMB65,002 million for the second quarter of 2020 on a year-on-year basis. Online games revenues grew by 40% to RMB38,288 million. The increase was primarily driven by higher revenues from smart phone games in both domestic and overseas markets,including titles such as Peacekeeper Elite and Honour of Kings,partly offset by the decrease in revenues from PC client games such as DnF and CrossFire. Total smart phone games revenues (including smart phone games revenues attributable to our social networks business) were RMB35,988 million and PC client games revenues were RMB10,912 million for the second quarter of 2020. Social networks revenues increased by 29% to RMB26,714 million. The increase was mainly due to revenue contributions from digital content services including the live broadcast services of HUYA Inc. ("HUYA",which we consolidated as a subsidiary from April 2020),and music subscriptions growth,as well as revenue growth from in-game virtual item sales.

Revenues from FinTech and Business Services increased by 30% to RMB29,862 million for the second quarter of 2020 on a year-on-year basis. The increase mainly reflected revenue growth from commercial payment due to increased average daily transactions and value per transaction,from wealth management,as well as from cloud services as a result of greater consumption of our public cloud,particularly by the Internet services and municipal services sectors.

Revenues from Online Advertising increased by 13% to RMB18,552 million for the second quarter of 2020 on a year-on-year basis. Social and others advertising revenues grew by 27% to RMB15,262 million. The increase was primarily due to revenue growth from our mobile advertising network,benefitting from increased traffic and a greater mix of video advertising with higher pricing,as well as increased revenues derived from Weixin Moments due to more inventories and impressions. Media advertising revenues decreased by 25% to RMB3,290 million. The decrease was primarily driven by lower advertising revenues from Tencent Video as a result of weak brand advertising demand amid the challenging macro environment,as well as delayed content production and releases.

Other Key Financial Information for 2Q2020

EBITDA was RMB40,525 million,up 24% YoY. Adjusted EBITDA was RMB43,742 million,up 25% YoY.

Capital expenditures wereRMB9,466 million,up 117% YoY.

Free cash flow*was RMB28,451 million,up 127% YoY.

As at June 30,2020,net cash position totalled RMB7,212 million. Fair value of our stakes in listed investee companies (excluding subsidiaries) totalled RMB726,244 million.

* Starting from 2020,free cash flow was adjusted by subtracting payments for media content and lease liabilities,in addition to subtracting payments for capital expenditure from the operating cash flow. Restated free cash flow was RMB16.8 billion in 1Q2019,RMB12.6 billion in 2Q2019,RMB28.1 billion in 3Q2019,and RMB31.3 billion in 4Q2019,respectively.

Operating Metrics

As at

30 June

2020

As at

30 June

2019

Year-

on-year

change

As at

31March

2020

Quarter-on-

quarter

change

(in millions,unless specified)

Combined MAU of Weixin

and WeChat

1,206.1

1,132.7

6.5%

1,202.5

0.3%

Smart device MAU of QQ

647.6

706.7

-8.4%

693.5

-6.6%

Fee-based VAS registered

subscriptions

203.4

168.9

20.4%

197.4

3.0%

Business Review and Outlook

Since the beginning of this year,and to broadly contribute to economic recovery. Here are some highlights for our key products and business lines:

Communication and Social

For Weixin,we released update to enhance functionalities for communication,content and services. For communication,the new Tickle function has enabled many creative expressions,and the addition of live broadcast function to Weixin school-plus-home groups facilitated online education within Weixin. MAUs and daily messages sent both increased year-on-year. For content,we upgraded the video content publishing functionalities in Official Accounts,enhanced content discovery with strengthened recommendation algorithm and launched content aggregation tools. These initiatives revitalised content consumption in Official Accounts,resulting in year-on-year increase in page views. As for services,we assisted traditional retailers to migrate online and support their business resumption via Mini Programs. Transactions value generated via Mini Programs increased sequentially as economic activities recovered. We launched a free and easy-to-use toolkit,Mini Stores,to help long-tail merchants build and operate digital storefronts,empowering them with various functions such as order management,after-sales services and live broadcast.

In QQ,we enriched features to enable users to better interact with their friends and families while they are physically apart. Users can initiate online parties and play AI-empowered social games together with their friends in video chats. To engage the expanding fan base for Anime,Comics,Games and Novels ("ACGN") content,we offered customisable comic stickers within QQ chats,and enriched content for ACGN-related Mini Programs,which gained popularity among young users.

Online Games

In China,user time spent on our smart phone games increased year-on-year but decreased quarter-on-quarter due to seasonality and back-to-office behavior. Honour of Kings deepened its user engagement with the release of more top-tier skins during its annual Give Me Five festival. Peacekeeper Elite celebrated its first anniversary with new content and game modes to enhance the competitive game experience,and we partnered with Tesla to introduce in-game Tesla-branded car skins in July,which proved highly popular. In the second quarter,we launched a strategy game,Chess Rush; an action game based on a popular anime IP,The Outcast; and Supercell's Brawl Stars. Brawl Stars ranked first in the iOS China Download Chart in June this year,extending its global leadership in the fast-paced 3v3 MOBA genre.

Internationally,our MAU increased significantly year-on-year and quarter-on-quarter due to new game launches and more user time spent during the stay-at-home period. We released an immersive team-based action game for PC,Valorant; a card game supporting cross-platform play on PC and smart phones,Legends of Runeterra; and a licensed mobile RPG,CODE:D Blood. Valorant was the most watched game globally on Twitch during the second quarter,reflecting the game's instant appeal to immersive action game players.

Digital Content

Our fee-based VAS subscriptions increased 20% year-on-year to 203 million,primarily due to growth in video and music content subscriptions. Video subscriptions increased 18% year-on-year to 114 million,driven by self-commissioned Chinese anime and drama series,such as The Land of Warriors Season 3,Candle in the Tomb: The Lost and The Romance of Tiger and Rose. Sequentially,traffic for long-form video sites in China,including Tencent Video,declined due to work-from-office behavior and delayed releases of certain high-profile variety shows and drama series. However,Tencent Video's traffic has increased subsequent to the quarter end,driven by popular drama series such as Nothing But Thirty,which we believe reflects the underlying resilience of our video platform. Music subscriptions rose 52% year-on-year to 47 million as Tencent Music increased the scope of the paid music library.

Online Advertising

Continued strength in social and others advertising contributed to the year-on-year revenue growth for our online advertising business. Sequentially,our online advertising revenue grew at a slower-than-seasonal rate as the games and Internet services sectors,which had ramped up advertising aggressively during the first quarter of 2020 due to work-from-home behavior,reduced their spending to more normal levels. However,our advertiser industry breadth diversified in the second quarter of 2020 as categories such as eCommerce and education spent heavily for the 618 promotional campaigns and summer courses,while categories such as automobile and consumer electronics brands increased their spending as consumption recovered.

To reinforce our long-term competitiveness in performance advertising,we launched an integrated advertising platform in July,where advertisers can more efficiently place advertisements across all of our inventories,including our mobile advertising network. This new platform will also enhance bidding efficiency and provide smarter targeting for advertisers.

For social and others advertising,Weixin properties,particularly Moments,saw rapid advertising impressions growth,while our mobile advertising network experienced higher eCPMs as video advertisements' revenue contribution increased from a single digit percentage in the second quarter of 2019 to over 40% in the second quarter this year. We believe the Weixin ecosystem is redefining China's online advertising by enabling advertisers to sustain relationships with their users in their own private domains,such as Official Accounts and Mini Programs,with the result that our advertisers are effectively investing in long-term and loyal customer relationships,rather than just purchasing one-time transactions.

As for media advertising,revenue declined sharply year-on-year due to weak demand from brand advertisers and the delayed production and release of certain variety shows and drama series,some of which we expect to release in the second half of 2020.

FinTech

Our commercial payment and wealth management businesses grew their users and business scale,driving FinTech revenue up year-on-year and quarter-on-quarter. Offline merchants,especially SMEs increasingly adopted our payment services and business management tools,as they sought to digitally upgrade their businesses to access customers and settle transactions via mobile phones. During the quarter,merchant demand for our payment solutions stepped up,especially from categories such as retail and restaurants. As a result,the number of average daily transactions and value per transaction for our commercial payments both grew year-on-year.

For our wealth management business,the aggregated customer assets and the number of active customers increased rapidly year-on-year as more customers appreciated the convenience of managing their cash through our secure and carefully-curated platform.

Cloud and Other Business Services

Increased cloud services usage by Internet companies and the public sector contributed to the year-on-year and sequential revenue growth of our cloud and other business services. Due to the lingering impact from COVID-19,offline project deployment has not fully resumed in the second quarter,but we signed major contracts in the financial and public sectors,while expanding our presence in emerging verticals such as medical,education,and meetings and exhibitions,to help customers in their digital transformation. On technology and infrastructure,we are adopting custom-made equipment,as well as building and expanding our own hyperscale data centres to enhance the performance and optimise the cost of our cloud services for the long run.

For other detailed disclosure,please refer to our website https://www.tencent.com/en-us/investors.html,or follow us via Weixin Official Account (Weixin ID: Tencent_IR).

About Tencent

Tencent uses technology to enrich the lives of Internet users.

Our communication and social platforms,Weixin and QQ,connect users with each other and with digital content and services,both online and offline,making their lives more convenient. Our targeted advertising platform helps advertisers reach out to hundreds of millions of consumers in China. Our FinTech and business services support our partners' business growth and assist their digital upgrade.

Tencent invests heavily in talent and technological innovation,actively promoting the development of the Internet industry. Tencent was founded in Shenzhen,China,in 1998. Shares of Tencent (00700.HK) are listed on the Main Board of the Stock Exchange of Hong Kong.

For investor and media enquiries,please contact:

Catherine Chan

Tel: (86) 755 86013388 / (852) 3148 5100 ext. 888369

Email: cchan#tencent.com

Wendy Huang

Tel: (86) 755 86013388 / (852) 3148 5100 ext. 850839

Email: wendyyhuang#tencent.com

Jane Yip

Tel: (86) 755 86013388 / (852) 3148 5100 ext. 868961

Email: janeyip#tencent.com

PH Cheung

Tel: (86) 755 86013388 / (852) 3148 5100 ext. 868919

Email: phcheung#tencent.com

Non-IFRS Financial Measures

To supplement the consolidated results of the Group prepared in accordance with IFRS,certain additional non-IFRS financial measures (in terms of operating profit,operating margin,profit for the period,net margin,profit attributable to equity holders of the Company,basic EPS and diluted EPS),have been presented in this press release. These unaudited non-IFRS financial measures should be considered in addition to,not as a substitute for,measures of the Group's financial performance prepared in accordance with IFRS. In addition,these non-IFRS financial measures may be defined differently from similar terms used by other companies.

The Company's management believes that the non-IFRS financial measures provide investors with useful supplementary information to assess the performance of the Group's core operations by excluding certain non-cash items and certain impact of M&A transactions. In addition,non-IFRS adjustments include relevant non-IFRS adjustments for the Group's major associates based on available published financials of the relevant major associates,or estimates made by the Company's management based on available information,certain expectations,assumptions and premises.

Forward-Looking Statements

This press release contains forward-looking statements relating to the business outlook,forecast business plans and growth strategies of the Company. These forward-looking statements are based on information currently available to the Company and are stated herein on the basis of the outlook at the time of this press release. They are based on certain expectations,assumptions and premises,some of which are subjective or beyond our control. These forward-looking statements may prove to be incorrect and may not be realised in future. Underlying the forward-looking statements is a lot of risks and uncertainties. Further information regarding these risks and uncertainties is included in our other public disclosure documents on our corporate website.

CONSOLIDATED INCOME STATEMENT

RMB in million,unless specified

Unaudited

Unaudited

2Q2020

2Q2019

2Q2020

1Q2020

Revenues

114,883

88,821

114,883

108,065

VAS

65,002

48,080

65,002

62,429

FinTech and Business Services

29,862

22,888

29,862

26,475

Online Advertising

18,552

16,409

18,552

17,713

Others

1,467

1,444

1,448

Cost of revenues

(61,673)

(49,695)

(61,673)

(55,271)

Gross profit

53,210

39,126

53,210

52,794

Gross margin

46%

44%

46%

49%

Interest income

1,749

1,652

1,636

Other gains,net

8,607

4,038

8,037

Selling and marketing expenses

(7,756)

(4,718)

(7,756)

(7,049)

General and administrative expenses

(16,499)

(12,577)

(16,499)

(14,158)

Operating profit

39,311

27,521

39,311

37,260

Operating margin

34%

31%

34%

34%

Finance costs,net

(2,005)

(1,982)

(2,684)

Share of (loss)/profit of associates and joint ventures

(295)

2,370

(295)

(281)

Profit before income tax

37,011

27,909

37,011

35,295

Income tax expense

(4,557)

(3,225)

(4,557)

(5,892)

Profit for the period

32,454

24,684

32,454

29,403

Net margin

28%

28%

28%

27%

Attributable to:

Equity holders of the Company

33,107

24,136

33,107

28,896

Non-controlling interests

(653)

548

(653)

507

Non-IFRS profit

attributable to equity holders of the Company

30,153

23,525

30,153

27,079

Earnings per share for profit attributable to

equity holders of the Company

(in RMB per share)

- basic

3.491

2.550

3.491

3.049

- diluted

3.437

2.520

3.437

2.999

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

RMB in million,unless specified

Unaudited

2Q2020

2Q2019

Profit for the period

32,454

24,684

Other comprehensive income,net of tax:

Items that may be subsequently reclassified to profit or loss

Share of other comprehensive income/(loss) of associates and joint ventures

159

(2)

Transfer of share of other comprehensive income to profit or loss upon

deemed disposal of an associate

(2)

-

Currency translation differences

2,358

3,059

Other fair value losses

(687)

(1,388)

Items that will not be subsequently reclassified to profit or loss

Net gains from changes in fair value of financial assets at fair value through

other comprehensive income

56,797

2,582

Other fair value gains/(losses)

102

(70)

58,727

4,181

Total comprehensive income for the period

91,181

28,865

Attributable to:

Equity holders of the Company

89,242

28,080

Non-controlling interests

1,939

785

OTHER FINANCIAL INFORMATION

RMB in million,unless specified

Unaudited

2Q2020

1Q2020

2Q2019

EBITDA (a)

40,525

42,228

32,649

Adjusted EBITDA (a)

43,742

45,190

35,102

Adjusted EBITDA margin (b)

38%

42%

40%

Interest and related expenses

1,822

2,006

1,757

Net cash/(debt)

7,212

(5,716)

(15,766)

Capital expenditures (d)

9,466

6,151

4,362

Note:

(a) EBITDA is calculated as operating profit minus interest income and other gains/losses,net,and adding back depreciation of property,plant and

equipment,investment properties as well as right-of-use assets,and amortisation of intangible assets. Adjusted EBITDA is calculated as EBITDA

plus equity-settled share-based compensation expenses.

(b) Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by revenues.

(c) Net cash / (debt) represents period end balance and is calculated as cash and cash equivalents,plus term deposits and others,minus borrowings

and notes payable.

(d) Capital expenditures consist of additions (excluding business combinations) to property,plant and equipment,construction in progress,investment

properties,land use rights and intangible assets (excluding video and music content,game licences and other content).

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

RMB in million,unless specified

Unaudited

Audited

30-Jun-20

31-Dec-19

ASSETS

Non-current assets

Property,plant and equipment

52,565

46,824

Land use rights

15,822

15,609

Right-of-use assets

10,622

10,847

Construction in progress

5,217

3,935

Investment properties

635

855

Intangible assets

135,260

128,860

Investments in associates

224,753

213,614

Investments in joint ventures

7,053

8,280

Financial assets at fair value through profit or loss

162,391

128,822

Financial assets at fair value through other comprehensive income

139,021

81,721

Prepayments,deposits and other assets

22,588

23,442

Deferred income tax assets

20,974

18,209

Term deposits

21,210

19,000

818,111

700,018

Current assets

Inventories

988

718

Accounts receivable

40,384

35,839

Prepayments,deposits and other assets

36,233

27,840

Other financial assets

1,585

375

Financial assets at fair value through profit or loss

6,327

7,114

Term deposits

79,920

46,911

Restricted cash

2,278

2,180

Cash and cash equivalents

173,718

132,991

341,433

253,968

Total assets

1,159,544

953,986

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (continued)

RMB in million,unless specified

Unaudited

Audited

30-Jun-20

31-Dec-19

EQUITY

Equity attributable to equity holders of the Company

Share capital

-

-

Share premium

41,701

35,271

Shares held for share award schemes

(3,959)

(4,002)

Other reserves

61,056

16,786

Retained earnings

436,611

384,651

535,409

432,706

Non-controlling interests

70,864

56,118

Total equity

606,273

488,824

LIABILITIES

Non-current liabilities

Borrowings

131,988

104,257

Notes payable

126,785

83,327

Long-term payables

4,675

3,577

Other financial liabilities

7,016

5,242

Deferred income tax liabilities

13,434

12,841

Lease liabilities

8,143

8,428

Deferred revenue

6,638

7,334

298,679

225,006

Current liabilities

Accounts payable

86,433

80,690

Other payables and accruals

43,675

45,174

Borrowings

15,101

22,695

Notes payable

-

10,534

Current income tax liabilities

10,813

9,733

Other tax liabilities

1,133

1,245

Other financial liabilities

5,746

5,857

Lease liabilities

3,474

3,279

Deferred revenue

88,217

60,949

254,592

240,156

Total liabilities

553,271

465,162

Total equity and liabilities

1,986

RECONCILIATIONS OF IFRS TO NON-IFRS RESULTS

As

reported

Adjustments

Non-IFRS

RMB in million,

unless specified

Share-based

compensation (a)

Net (gains)/losses from

investee companies (b)

Amortisation of

intangible assets (c)

Impairment

Provision/(reversals) (d)

Income

tax effects (e)

Unaudited three months ended June 30,2020

Operating profit

39,311

3,507

(14,672)

870

8,613

-

37,629

Profit for the period

32,454

4,225

(16,108)

1,886

9,268

(505)

31,220

Profit attributable to equity

holders

33,107

4,019

(15,436)

1,503

7,310

(350)

30,153

Operating margin

34%

33%

Net margin

28%

27%

Unaudited three months ended March 31,2020

Operating profit

37,260

3,435

(5,272)

639

(487)

-

35,575

Profit for the period

29,403

4,198

(6,992)

1,572

(18)

(179)

27,984

Profit attributable to equity

holders

28,896

3,957

(6,976)

1,338

(18)

(118)

27,079

Operating margin

34%

33%

Net margin

27%

26%

Unaudited three months ended June 30,2019

Operating profit

27,521

2,453

(4,950)

118

2,139

-

27,281

Profit for the period

24,684

2,373

(6,523)

1,486

2,492

(321)

24,191

Profit attributable to equity

holders

24,136

2,296

(6,522)

1,432

2,492

(309)

23,525

Operating margin

31%

31%

Net margin

28%

27%

Note:

(a) Including put options granted to employees of investee companies on their shares and shares to be issued under investee companies' share-based incentive plans which can be acquired by the Group,and other incentives

(b) Including net (gains)/losses on deemed disposals/disposals of investee companies,fair value changes arising from investee companies,and other expenses in relation to equity transactions of investee companies

(c) Amortisation of intangible assets resulting from acquisitions

(d) Impairment provisions/(reversals) for associates,joint ventures,goodwill and intangible assets arising from acquisitions

(e) Income tax effects of non-IFRS adjustments

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